ComEd parent Exelon has a deal to buy Integrys Energy Services, which provides electricity to more than 700,000 households in Chicago. Photo: Thinkstock

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Exelon buys Integrys unit, takes over Chicago power deal

The city of Chicago has a new electricity supplier, and it's a familiar name: Exelon Corp.

The parent of Commonwealth Edison Co. has a deal, announced today, to buy Integrys Energy Services, the retail power and natural gas supply arm of Chicago-based Integrys Energy Group Inc., which provides electricity to more than 700,000 households in Chicago. Exelon is paying $60 million plus adjusted working capital of about $183 million.

The Chicago contract, the largest such municipal electricity pact in the U.S., was won by Integrys in December 2012. The runner-up? Exelon. At the time, the loss of the Chicago deal was a significant disappointment to Exelon, by far the largest energy company in Illinois and one of the biggest publicly traded companies in the Chicago area.

Integrys Energy Group, though, has decided to sell its utility operations, which include Peoples Gas and North Shore Gas, the natural gas distributors for the city and many northern suburbs, to Milwaukee-based Wisconsin Energy Corp. And its retail supply arm, which Integrys says it already had planned to unload before striking the $5.7 billion deal with Wisconsin Energy, isn't part of that transaction.

The purchase of Integrys Energy Services will give Exelon a firm that had $2.17 billion in sales and provided 21 million megawatt-hours of electricity and 184 billion cubic feet of natural gas last year. The retail unit employs 300. Integrys' commercial and residential customers now will be served by Constellation, Exelon's retail unit.

ELIMINATES COMPETITOR

Apart from assuming the large Chicago contract, Exelon is ridding itself of a competitor that helped drive down profit margins, particularly in Illinois.

Especially since municipalities began buying power in bulk on behalf of their residents three years ago, Exelon executives have complained that competitors were striking economically questionable deals to win business. As the residential market heated up, Exelon found itself losing most of the biggest deals to cheaper rivals.

Since then, though, the companies that won most of that municipal business, like Akron, Ohio-based FirstEnergy Solutions, have pulled back and aren't bidding aggressively to keep their customers. Before today's deal, Exelon already was beginning to win more bidding contests. The purchase of Integrys just furthers that momentum.

Indeed, there's a little too much momentum for the liking of some. Howard Learner, executive director of the Environmental Law and Policy Center, called on the U.S. Department of Justice and the Illinois Commerce Commission, among other agencies, to probe the potential anti-competitive effects of the deal. In a statement, Mr. Learner, a critic at times of Exelon, said, “If combined, these companies appear to control more than half of the retail electricity market in Northern Illinois. … One of the promises of deregulation in Illinois was a competitive retail electricity services market that would benefit consumers. We're concerned that this new acquisition by Exelon appears to reduce competition and increase the concentration of market power.”

Chicago's contract with Integrys was a significant money saver for the city's households when it first took effect in early 2013. But, after the city repriced the deal with Integrys last spring following an increase in wholesale power prices, the deal has proven to be higher-priced over this summer than the default rate charged by ComEd.

The city recently reworked the contract in an attempt to produce savings for more Chicago households, but in so doing, it simultaneously raised rates for 30 percent of its residents compared with the earlier version.

It remains to be seen whether Exelon will attempt to make the contract, which runs through next May, more favorable for customers. If so, that would surely win the gratitude of Mayor Rahm Emanuel, who could be an important ally in legislative battles to come in Springfield for the state's biggest power generator.

The deal adds significant heft to Exelon, already a major energy supplier to businesses and homes. It will add Integrys' 1.2 million commercial and residential customers in 22 states, mainly in the Northeast and Midwest, giving it a total of 2.5 million commercial and residential customers.

Exelon expects the transaction to close no later than the first quarter and possibly in the fourth quarter.